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Antitrust in Australia: where is it heading?

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Peter McDonald

Partner

Sydney

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24 September 2014

Competition law in Australia is under a thorough review. The Australian Competition and Consumer Commission (ACCC) is shifting its enforcement focus. And the ACCC's leniency guidelines have recently been amended.

In this alert we highlight these key developments, and what they could mean for you.

 

Harper Review of competition law and policy

The Federal Government is undertaking a comprehensive review of Australia’s competition law and policy. There have been hundreds of submissions received and the review panel has now released its draft report.
 

ACCC Chairman, Rod Sims, stated he was "pleased at a high level that the main concerns we expressed have been addressed."

Below we highlight some of the key issues, without trying to be comprehensive.

 

Gaps in Australian competition law?

Sims has suggested that Australia’s competition laws are lagging behind international best practice in three key areas.
 

Market power 

The ACCC argues the current wording of section 46 of the Competition and Consumer Act 2010 (CCA) (which regulates misuse of market power) does not sufficiently capture exclusionary anti-competitive conduct that can damage the competitive process. Consequently, the ACCC has suggested amending the test to capture conduct that has either the purpose or likely effect of substantially lessening competition in a market.

While Sims is correct in noting that an examination of the effect of unilateral conduct is a feature in other leading jurisdictions, some have suggested there is not yet a clear case for change in Australia.

The review panel has suggested a ‘middle ground’ – in that the test should be amended to include an effects test, but subject to a defence that the misuse of market power provisions would not apply to conduct that (a) would be a rational business decision / strategy if the corporation did not have substantial market power, and (b) is likely to benefit the long-term interests of consumers.

It appears the panel has reached a view on the merits for change (which have been hotly debated in the media), but has specifically sought further input on the scope of the defence.

Price signalling 

The ACCC argues the current prohibitions against anti-competitive information exchange, which are limited to the banking sector, should apply equally across the economy.

Sims has a point that many international information exchange rules (particularly those in Europe) are stricter than the somewhat indirect prohibitions in Australia.  However, the current legislation applying to banks is widely viewed as poorly drafted and not a good model for other sectors.

The review panel considers that the current banking prohibitions are indeed not fit for purpose and should be repealed. In their place, the panel suggests section 45 of the CCA (which prohibits anti-competitive agreements) should be extended to cover so called ‘concerted practices’ that have the purpose or likely effect of substantially lessening competition.

This would be a significant - but arguably reasonable - addition to our laws.

Market studies 

The ACCC has suggested it should be granted an explicit ‘market studies’ function in order to be an effective advocate for competition in Australia.

Such studies are commonplace in places such as the UK, and have in fact also featured in Australia subject to Ministerial direction (recall the grocery and petrol industry inquiries).  The ACCC suggestion has generally met with a lukewarm reception from business who fear more red tape and cost from increased regulation.

Significantly, the review panel has recommended the establishment of a new national competition body (the ‘Australian Council for Competition Policy’) to replace the National Competition Council. This new body would have a mandate to drive the evolving competition policy agenda. Among other things, its powers would include undertaking market studies at the request of any government (Federal or State).

 

Merger policy

In response to submissions advocating for greater recognition of ‘national champions’ to enable Australian firms to be successful globally, Sims argues that protecting firms from domestic competition is not justified. Sims notes that mergers can be authorised by the Competition Tribunal in the event of a net public benefit. This was the process started by Murray Goulburn in its attempted acquisition of Warrnambool Cheese and Butter – perhaps the key recent example of a potentially justified and legitimate ‘national champion’ case. The review panel agrees with the ACCC on this point and has not proposed reforms here.

With respect to the informal merger review process, Sims has rejected calls to introduce aspects of formal regimes into Australia’s mostly informal system (and in particular the right to access the file that is a hallmark of the European Commission’s merger review policy) on the basis that this would impair the timeliness and flexibility of the informal system. While the ACCC can be given credit for incrementally improving transparency in its informal reviews, merger parties in complex matters often have concerns about sufficient access to information, which is generally only available in formal / Court approval processes.

The review panel accepts the informal process generally works well, but has proposed important reforms to streamline the formal merger review processes (both formal clearance and authorisation). The panel suggests:

  • these processes should be combined (meaning approval is obtained either if there is no substantial lessening of competition or if there are net public benefits) and simplified to remove unnecessary impediments (including the removal of proscriptive up-front information requirements);

  • the ACCC should be the first instance-decision maker, subject to review by the Competition Tribunal;

  • the formal process should be subject to strict timelines that can only be extended with the consent of the merger parties.

Like many key recommendations, these proposed changes include a healthy dose of good sense, but are a balancing act between competing interests. In any event, the simplification and consolidation recommendations for formal reviews are most welcome.

Cartels
 

Another notable proposal is the intention to simplify the current cartel prohibitions. This is a good idea. Of note, the review panel specifically suggests:

  • that the provisions should be confined to conduct involving firms that are actual competitors (and not firms for whom competition is a mere possibility);

  • a broader exemption from the cartel prohibitions for joint ventures and similar forms of business collaboration. The panel considers these types of collaboration should only be unlawful if they substantially lessen competition.

 

Shift in enforcement focus for ACCC

Putting the Review to one side, Sims has also recently publicly stated that the ACCC will increasingly shift its enforcement focus to competition cases, rather than consumer cases. 

The ACCC aims to increase the number of competition court cases from two a year to six to eight, while reducing the average 25 consumer court cases a year to 15. Sims said that, in the next two years, the ACCC will place a particular emphasis on criminal cartel prosecutions, industrial relations and product safety. We understand the ACCC is currently conducting 10 in-depth cartel investigations.

 

Release of updated Immunity and Cooperation Policy for Cartel Conduct

Finally, these developments follow the recent release of the ACCC’s updated and simplified Immunity and Cooperation Policy for Cartel Conduct.

The updated policy incorporates a two-step process, under which applicants that qualify for criminal immunity will initially be provided with a letter of comfort to that effect from the Commonwealth DPP, rather than having to wait for a statutory undertaking. The updated policy also removes the disqualification on ‘clear leaders’ in cartel conduct from applying for immunity.

Both changes are designed to improve certainty in the policy – which is a critical element for its success. From an applicant’s perspective the biggest ‘leap of faith’ in a criminal context remains some uncertainty as to whether the Commonwealth DPP will apply the policy in a manner entirely consistent with the ACCC. Only time will tell on this front.

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